Carnival Corporation & plc Q1 2014 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Robin Farley - UBS - Analyst : Thanks. I was going to ask about your guidance coming $0.10 off the top and the bottom and given the better close in Q1, I guess it sounds like Japan is the reason why that and maybe a little bit of fuel off of the top. So I guess I will ask, when you look at your bookings for the remainder of the year being at higher volume at lower prices, is that mostly due to Q2 because, in theory, if the comparisons get easier in Q3 as we get closer, we would see higher prices and so you'd hold back on some booking at lower prices year over year. I guess if you could give us a sense of that sort of higher volume, lower price, how that changes from Q2 into the second half?

Question: Robin Farley - UBS - Analyst : Okay. And then just the other question is can you quantify a little bit the lower occupancy in the Carnival brand, just the degree? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Robin Farley - UBS - Analyst : Okay, great. Thank you.

Question: Steven Kent - Goldman Sachs - Analyst : Hi, good morning. Arnold, could you just discuss your cost saves and just talk about them more broadly and will you set a target either in dollars or percentage? And if you don't do that, why wouldn't you do that? And then, David, I think you mentioned that the booking curves have extended and you mentioned something about but they were still at the lower end of where you'd like them to be. What is the lower end and what is the higher end on the booking curves?

Question: Steven Kent - Goldman Sachs - Analyst : Okay, thanks. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Felicia Hendrix - Barclays Capital - Analyst : Hi, good morning. I am wondering if you could just give us some color on the Carnival brand yields, what they were in the first quarter and when you think they get positive and then similarly, Costa's net yields in the quarter.

Question: Felicia Hendrix - Barclays Capital - Analyst : And on Costa?

Question: Felicia Hendrix - Barclays Capital - Analyst : That makes sense. And then just on Carnival, I totally understand this strategy that you have, trying to get the bookings levels up given the hole that you were in, but I am just wondering, as you kind of look forward, do you [wonder] if the consumer gets used to certain pricing or promotions on the brand and specifically when you look past this year, do you envision the Carnival brand having more pricing power?

Question: Felicia Hendrix - Barclays Capital - Analyst : Okay, thank you.

Question: James Hardiman - Longbow Research - Analyst : Hi, good morning. Thanks for taking my call. Maybe just a little piggyback on Felicia's question. You talked about you saw a price dip in 2009 and that came back in 2011. Maybe you could talk a little bit about relative pricing compared to the competitive set, Caribbean line I am talking about specifically here. It seems like last year there was a bigger gap versus a lot of your competition. I am assuming that has worked its way back now, but how should I think about that going forward and have we gotten back to the historical gap versus the ships that Carnival would ultimately compete with?

Question: James Hardiman - Longbow Research - Analyst : Yes, exactly.

Question: James Hardiman - Longbow Research - Analyst : That's really helpful actually and maybe -- Arnold, you talked about at the beginning of the call sort of those three major segments of cruisers -- the loyalists, the new to cruise, the switchers. Maybe expand on that a little bit. Is that brand consideration independent of the cheaper prices that those people are receiving and ultimately is that sustainable as prices inevitably come up? Maybe talk a little bit more about that.

Question: James Hardiman - Longbow Research - Analyst : But basically it sounds like it's the switchers that are the last of the three to sort of get back to where we were pre last year's --?

Question: James Hardiman - Longbow Research - Analyst : Very helpful. LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: James Hardiman - Longbow Research - Analyst : Good stuff. Thanks, guys.

Question: Tim Conder - Wells Fargo Securities - Analyst : Thank you and good morning. Two things, if you can just maybe give us a little bit of an update. On the last call, you mentioned that Carnival was a little bit ahead of your period of recovery for the brand and it sounds like the brand perception has continued along that vein. But if you frame that from the perspective of pricing, has much changed from your statement on the prior call that the Carnival brand is tracking a little quicker than what you expected and Costa still lagging? Just an update there. And then the second question would be related. Looking out over the next couple of years here, Arnold, you continue to outline there is a lot of cost-savings opportunities, but you also, in your preamble, talked about elevated spending on advertising and marketing. How do you see those two netting out over the next several years for net cruise costs ex-fuel?

Question: Tim Conder - Wells Fargo Securities - Analyst : Okay, so just to clarify, you are saying that the Carnival brand continues to track ahead of that expected recovery and the Costa brand, is it still -- has it picked up a little bit of that pace? I just wanted to make sure I'm clear on the Costa side of the equation.

Question: Tim Conder - Wells Fargo Securities - Analyst : And again, I apologize, on the cost side, just to clarify, are you saying that costs should be flat, down or slightly up over the long term netting the savings in the incremental spending?

Question: Tim Conder - Wells Fargo Securities - Analyst : Okay, great. Thank you.

Question: Ian Rennardson - Jefferies & Co. - Analyst : Yes, thank you. Good morning. A couple of questions. I'm slightly -- if you could help us a little bit with your yield guidance for Q2 because if I look at last year's yield, it was down 1.9% in constant dollars in Q2 followed by minus 3.8% in Q3. Now you are looking for minus 3% to 4% in Q2, but then a relatively big positive in Q3. How big can that be in Q3 please? And then the second question would be yields in Q1 ex-Costa, so if we strip Costa, big improvement in Costa out, what was the yield for the rest of the Company? Thank you.

Question: Ian Rennardson - Jefferies & Co. - Analyst : Okay, thank you. And then the other one was --.

Question: Ian Rennardson - Jefferies & Co. - Analyst : Yes, yes, yes. Okay, thank you.

Question: Jamie Rollo - Morgan Stanley - Analyst : Yes, hi thanks. The balance sheet customer deposits at the end of the quarter were not much changed year on year despite, as you say, a very significant booking volume increase in the wave period and I am wondering it could suggest your pricing on those volumes is very weak, but it may also suggest you are selling more through agents. I am just wondering if there's been a mix in your direct/indirect or if we

Question: Jamie Rollo - Morgan Stanley - Analyst : Okay, and then -- thanks. The other question was on the cost guidance. So for the second quarter, the guidance looks quite high given Q2 last year, NCCs were up 8% given all the [trans] costs. And I think even if we strip out the (inaudible) proceeds from the quarter the year before, they are still up about 6% Q2 last year and only a small bit of that seems to be the timing you mentioned from the first quarter. Given your sort of full-year guidance for costs, you are expecting the second half looks to be roughly flat. I am just wondering what is causing that significant improvement and whether any of the savings you mentioned are being built into your guidance. Thank you.

Question: Jamie Rollo - Morgan Stanley - Analyst : So that shifted into Q1, Q2 this year? You are not actually cutting your advertising, are you?

Question: Jamie Rollo - Morgan Stanley - Analyst : Okay, thank you very much.

Question: Patrick Scholes - SunTrust Robinson Humphrey - Analyst : Hi, good morning. I have two questions for you. You briefly talked about expectations for third-quarter revenue yields and sort of indicated just back half will be up. What would you expect to be a stronger quarter, the third or the fourth, as far as that revenue yield growth? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Patrick Scholes - SunTrust Robinson Humphrey - Analyst : Okay. We will catch up on that in the future. And then, gentlemen, second question here. You have talked today a bit about getting back to prior pricing levels and mentioned that hotels have gotten their -- certainly one difference between the cruise industry and the hotel industry is the different supply characteristics. That being said, for next year, what would you -- what do you see capacity in the Caribbean shaping up and that is really maybe very important because, this year, it has been high and impacted prices. What are your expectations for next year for the Caribbean both for yourselves and the industry?

Question: Patrick Scholes - SunTrust Robinson Humphrey - Analyst : Okay, got it. I appreciate the color. Thank you.

Question: Brian Dobson - Nomura Securities - Analyst : Hey, guys, two quick questions for you. So you talked a lot about a strong post in bookings. I suppose how much of the 2Q and 3Q are left to sell at this point? You mentioned that you were just shy of a normalized forward booking curve, but I guess where are you more particularly? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Brian Dobson - Nomura Securities - Analyst : And then I guess thinking about your recent ship renovations, can you give any color on the type of premium pricing that you are seeing or the returns on those Fun Ship 2.0 renovations?

Question: Brian Dobson - Nomura Securities - Analyst : Okay, thanks.

Question: Wyn Ellis - Numis Securities - Analyst : Yes, hi, good morning. I have just got three questions, if I can, please. First of all, on Japan, you said it is only 1% of your capacity for this year. Could you clarify for us what it will cost you, you think, in EPS terms? And then secondly on the Ukraine, have you seen any impact of the unrest there and the political maneuvers and have you built that into your guidance for this year, any additional caution? And then finally just a question on advertising. I think, Arnold, in your opening remarks, you said it would be up about 14% this year. Is that something you would expect to continue in following years? LSEG STREETEVENTS | www.lseg.com | Contact Us consent of LSEG. 'LSEG' and the LSEG logo are registered trademarks of LSEG and its affiliated companies.

Question: Wyn Ellis - Numis Securities - Analyst : Okay, thank you very much.

Question: Edward Stanford - The Lazarus Partnership Limited - Analyst : Good morning. Just one question if I may. Could you give us an update on where you are with fitting the scrubber technology to your vessels and the extent to which, as a percentage of the fleet, will be embodied by the end of the year please?

Question: Edward Stanford - The Lazarus Partnership Limited - Analyst : Thank you.

Question: Steven Kent - Goldman Sachs - Analyst : Just a quick question on the impact of the Galveston oil spill. Should we be thinking about that as having any EPS impact in the next quarter, and what is your current thoughts on that and where those ships stand?

Question: Steven Kent - Goldman Sachs - Analyst : Great, thank you.

Question: Robin Farley - UBS - Analyst : Thanks. I wonder if you could give a little bit of color on, you mentioned the other European brands excluding Costa being down in Q1. Just sort of a little bit of color on those factors.

Question: Robin Farley - UBS - Analyst : Okay, great. Thank you.

Question: Tim Conder - Wells Fargo Securities - Analyst : That's fine. My previous question was just answered. Thank you.